Matter of Paramount Communications, Inc. v. New York State Thruway Authority, 92 N.Y.2d 504 (1998)
For purposes of determining eligibility for coverage under the New York Property/Casualty Insurance Security Fund, the location of insured property is determined by its physical presence in New York State, regardless of how it was delivered or where the insured relinquished possession and control.
Summary
Paramount Communications sought coverage from the New York Property/Casualty Insurance Security Fund after its insurer, Integrity Insurance Company, became insolvent. The claim stemmed from defective valve systems Paramount manufactured and sold to Niagara Mohawk for use in a New York nuclear power plant. The Superintendent of Insurance denied coverage, arguing that Paramount relinquished possession of the valves in Rhode Island, not New York. The Court of Appeals reversed, holding that since the valves were located in New York when the claim arose, they met the statutory requirement for Security Fund coverage, irrespective of where Paramount relinquished control. The Superintendent’s interpretation was deemed inconsistent with the statute.
Facts
Paramount’s subsidiary, Gulf & Western Manufacturing, sold eight main steam isolation valve (MSIV) systems to Niagara Mohawk Power Corporation for use in its New York nuclear power plant. The purchase order specified delivery “FOB — Jobsite, Scriba, New York.” The MSIVs were manufactured in Rhode Island and shipped to New York via a common carrier. A design defect was discovered in 1984, delaying plant operation and resulting in a $36 million settlement between Niagara Mohawk and Paramount.
Procedural History
Niagara Mohawk sued Paramount, which settled the claim. Paramount sought coverage from its insurers, including Integrity Insurance Company. Integrity became insolvent, leading Paramount to file a claim with the New York Property/Casualty Insurance Security Fund. The Superintendent of Insurance denied the claim. Paramount then initiated an Article 78 proceeding challenging the Superintendent’s determination. The Supreme Court annulled the Superintendent’s decision, which was affirmed by the Appellate Division. The Court of Appeals granted leave to appeal.
Issue(s)
Whether, for purposes of determining eligibility for coverage under the New York Property/Casualty Insurance Security Fund, the location of the insured property is determined by its physical presence in New York, or by the location where the insured relinquished physical possession and control.
Holding
Yes, the location of the insured property is determined by its physical presence in New York because Insurance Law § 7602(g) requires that the claim be based upon a policy insuring property “located…in this state.”
Court’s Reasoning
The Court of Appeals held that the Superintendent’s interpretation, which hinged on where Paramount relinquished physical possession and control of the valves, was inconsistent with the plain language of Insurance Law § 7602(g). The statute requires the claim to be “based upon a policy insuring property or risks located or resident in this state.” The court reasoned that the direct and consequential damages stemmed from the physical presence of the valves in New York. The court quoted Black’s Law Dictionary to define “located” as “having a physical presence or existence in a place.” The Superintendent’s argument that Paramount’s use of a common carrier was dispositive was deemed arbitrary. The court emphasized that eligibility for Security Fund coverage should depend on the location of the property, not the location of the insured or where possession was relinquished. While acknowledging the Superintendent’s broad authority to interpret the Insurance Law, the court stated that an irrational determination requires no deference and may be annulled. The Court emphasized the purpose of the Security Fund which is to pay claims where an insurer has become insolvent. The court explicitly declined to address the lower courts’ reliance on UCC provisions, stating, “In view of our holding regarding the insured property’s ‘location’ for Security Fund purposes, we have no need to resolve this issue under the facts presented.”